- Retailer’s share price falls to three-year low amid profit warning
- It reported weak demand for its expensive trench coats, bags and scarves
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British designer Burberry issued a profit warning for the second time in three months, as the super-rich tighten their budgets over Christmas.
The retailer’s share price fell to a three-year low after it reported weak demand for its high-end trench coats, bags and scarves and knocked £100m off its profit outlook.
Luxury brands are struggling as wealthy customers begin to feel the effects of high inflation. It marks a reversal in fortunes for Burberry, which was at an all-time high two years ago as the super-rich splurged on clothes, handbags, shoes and champagne.
One analyst at the time compared the spending to the 1920s, an era of decadence and prosperity.
But Russ Mould, investment director at AJ Bell, said: ‘So much for the roaring twenties.
‘The idea that wealthy individuals will completely overcome the inflation and cost of living crisis has been thrown in the dustbin.
‘No sector is completely immune to such pressures and over the past six months we have seen luxury goods cracks as demand has fallen.’
There were hopes that Christmas would provide a respite for Burberry but there was no such luck. Now all eyes are on Bernard Arnault’s LVMH which reports in two weeks’ time.
Burberry shares fell 15 per cent at one point, the sharpest intraday drop in more than a decade, after it said profit for the year ending March 30 would be between £410 million and £460 million . Shares fell 5.5 per cent or 75p to 1,286p. In November Burberry, which has 225 stores and 139 concessions, forecast full-year profit at a low of £552 million to £668 million.
The heritage label’s stock has fallen nearly 40 percent in the past six months as the post-Covid boom in high-end spending by Chinese consumers has ended.
Chief executive Jonathan Akeroyd said the business had been ‘challenging against a backdrop of declining luxury demand’.
Sales in the 13 weeks ending December 30 fell 7 per cent to £706 million from £756 million compared with the same period last year.
‘We have experienced further slowdown in our key December trading period and we now expect our full-year results to be below our previous guidance,’ said Aykroyd, who is set to take the top job in 2022.
‘We are confident in our strategy to realize Burberry’s potential.’
But Mold warned: ‘Unlike your average fashion retailer, this is not Burberry’s way of driving down prices and luring shoppers in with bargains. The luxury goods scene is about trying to inspire consumers to have something exquisite and premium priced so that it gives the illusion that it is only available to the elite.’
Luxury rivals are also struggling. Gucci owner Kering reported a bigger-than-expected third-quarter sales decline, with revenue falling 9 percent.
Cartier jewelery owner Richemont missed first-half profit forecasts in November. Sales growth declined to 5 percent in July to September compared to 19 percent growth in the April to June period.
Analysts have predicted that LVMH’s sales will decline this year as buyers stop spending on its designer bags and clothes. The company reported slower sales in the third quarter after the post-pandemic boom ended.
Chief Financial Officer Jean-Jacques Guioni said the ‘roaring years’ had ended in October.
Sophie Lund-Yates, analyst at Hargreaves Lansdown, said: ‘The visible cracks in luxury demand are very telling.
‘The so-called aspirational buyer is one of the demographics that is falling behind, and Burberry is more in touch with this type of customer.’